US secondary aluminium producers see tightening scrap margins for 356.1 aluminum alloy

As reported by Argus raw material spreads for US producers of secondary aluminium alloy 356.1 dropped to more than two-year lows in October. This was caused by sharper price drop in finished product than scrap wheel prices driven by falling demand. The spread was 31.5¢/lb in October 2018.

The spread between 356.1 alloy and 356 wheel scrap stood at 22.5¢/lb in the last week of October, up slightly from 19.5¢/lb in third week. The price of 356.1 alloy has been falling over last year by about 28¢/lb, while 356 wheel scrap, one of the key raw materials for the alloy, is down by only 19¢/lb. Hence, the margins for US secondary smelters that recycle 356 wheel scrap into ingots have come down significantly.   

Market participants have also reported slower flows of shreddable car scraps which bear wheel scrap. However, some secondary alloy producers are of the view that prices of 356 wheel scrap are not the only cause to tighten the spread.

Salvage yards and dealers, who are hoarding scrap cars because of the low ferrous scrap prices, are willing to put catalytic converters or wheels for sale, so 356.1 alloy producers have enough aluminium scrap flows.

Analysts say Alloy 356.1 prices have been falling on lower demand for all alloys because of slowing manufacturing activity.

Business for 356.1 slowed, "and what happens when there's less demand in the marketplace? The price goes down," one of the two producers said.

Even though spot alloy demand is the key driver for spreads, brokers dealing in wheels are finding fewer now than normal, not helping spreads for secondary smelters.